On 1 January 2015, new rules governing Belgium's tax shelter exemption for investments in audiovisual productions have entered into force. Framework agreements concluded between investors and production companies as from this date should comply with the new rules, whilst agreements concluded before 1 January 2015 continue to be governed by the "old" tax shelter rules.
Several aspects of the newly introduced rules deviate significantly from the old rules that applied until 31 December 2014. The new rules require immediate action on the part of production companies and intermediaries so that they can safeguard the continuity of their tax shelter related activities.
For the investors, the tax shelter product is made more transparent and more attractive.
The main changes brought about by the new rules when compared to the old regime can be summarized as follows:
- Production companies intending to raise funding under the new tax shelter rules, as well as companies or physical persons desiring to act as an intermediary for tax shelter purposes, should now be formally recognized by the tax administration as an "eligible production company" or an "eligible tax shelter intermediary", respectively, so that they can (continue to) act as such.
It is paramount for existing and prospective production companies and tax shelter intermediaries to start this "recognition procedure" as soon as possible. As from 1 January 2015, no tax shelter funding may be validly raised by or through them before they have effectively obtained the required recognition. The recognition process can take 30 days from when a complete application file has been sent to the competent tax administration.
- Under the new rules, both production companies and intermediaries should comply with applicable Belgian rules on public offerings of investment products. If the offering of a tax shelter product is structured as a public offering, this can mean that the relevant production company must draft a prospectus, informing prospective investors about the characteristics and risks of the tax shelter product they are offering. Such prospectus must be approved by the Belgian financial regulatory authority, FSMA.
Apart from administrative sanctions that can be imposed by the FSMA and compensation claims that be sought by investors, non-compliance with these new rules by production companies and/or tax shelter intermediaries can now also result in the loss of their recognition as an eligible production company or tax shelter intermediary. It is therefore important for production companies and intermediaries to carefully examine their potential obligations under Belgium's regulatory rules on public offerings.
- Under the new regime, the tax shelter product has become more transparent for the investors. A tax shelter investment no longer consists of a mix between debt and equity provided by the investor, but it is now conceived as a non-refundable (and non tax- deductible) cash payment in exchange for a so-called tax shelter certificate, which the production company should hand over to the investor. For the production company, the benefit lies in the fact that the amount of money invested is non-refundable.
The investor may claim a provisional tax exemption for an amount equal to 310% of the aforementioned cash payment made in execution of a framework agreement, but this is capped at an amount equal to 150% of the expected fiscal value of the tax shelter certificate. The production company will then have a period of 18 months (or 24 months if the production is an animated film) to spend the invested funds on qualifying expenses. Upon completion of the production, the production company should apply to the relevant tax administration for a tax shelter certificate evidencing the amount of qualifying expenses made by the production company, and it should subsequently hand this certificate over to the investor(s). The investor will then be able to claim a final tax exemption up to 150% of the fiscal value of such tax shelter certificate.
The new rules also allow the production company to pay a guaranteed yield to the investor. Generally speaking, this yield is to be computed for a maximum period of 18 months based on the sums of money invested by the investor. The amount of the yield should not exceed EURIBOR + 4.5 %.
EXAMPLE
Invested amount: EUR 48 387
Tax shelter certificate (estimated and final value): EUR 100 000
Provisional tax exemption of EUR 48 387 x 310% = EUR 150 000
Final tax exemption of EUR 100 000 x 150% = EUR 150 000
→ Tax saving: EUR 150 000 x 33.99% = EUR 50 990
Yield (after tax) obtained by investor from tax exemption:
EUR 50 990 - EUR 48 387 = EUR 2 603
Yield received by investor from the production company:
EUR 48 387 x (EURIBOR + 4.5%) x (18/12) = EUR 3 992 (before tax)
Total ROI: EUR 2 603 + EUR 3 992 = EUR 6 595 = 13.6 % of EUR 48 387
It is expected that these new rules will allow investors to obtain a tax advantage similar to the one available under the old regime, whilst the impact of making a tax shelter investment on their cash position would be less far-reaching than it was before.
- Framework agreements concluded between investors and production companies from now on will have to be notified to the tax administration within a period of one month after their signing.
In conclusion, although the new rules bring about significant changes, which require action and continuous vigilance on the part of investors, production companies, and intermediaries, the tax shelter regime remains a very interesting and potentially lucrative one for all parties involved.
